Belk comes out of bankruptcy a day after filing for Chapter 11

UPDATE: February 25, 2021: Belk has emerged from chapter 11 bankruptcy a day after filing, the company said in a press release. With the approval of a restructuring deal, the department store retailer said it had $ 225 million in new capital, extended maturities (until 2025) on its term loans and a deleveraging of about $ 450 million.

“The cash injection and debt reduction provide Belk with increased liquidity to focus on its key growth initiatives, including further enhancements to its omnichannel capabilities and the expansion of commodity offerings into new product categories. relevant products, ”including home, wellness and the outdoors, the company said.

Dive brief:

  • Belk filed for Chapter 11 bankruptcy on Tuesday with a lender-backed reorganization plan that eliminate $ 450 million in debt and keep its footprint of 291 stores intact.
  • The company already got court approval of his plan after a hearing on Wednesday. Without prompt approval, according to Belk CFO William Langley, the retailer would face liquidation.
  • The approval came over objections from the Department of Justice bankruptcy trustee assigned to Belk’s case. The trustee, the union, the representative argued such rapid approval would deprive multiple stakeholders “of sufficient time to assess – let alone respond to or oppose – the plan”.

Dive overview:

Belk announced plans to file for bankruptcy a few weeks ago as the department store chain, originally founded in 1888, attempted to resolve financial woes exacerbated by the COVID-19 crisis.

The fortunes of the retailer have increased and decreased with the department store sector. William Henry Belk founded the company when he opened a small bargain store in Monroe, North Carolina. When his brother joined him three years later, the company was renamed Belk Brothers. It grew to 20 stores in 1923 and 195 stores in 1943, according to Langley.

The retailer built its brand in the southern US markets over the following decades over generations of Belks, until private equity firm Sycamore Partners bought the company for $ 3 billion in 2015 in a leveraged buyout which added heavy debt to the company’s balance sheet.

Belk entered Chapter 11 with $ 1.9 billion in funded debt, a heavy burden for a retailer struggling with a “tough business environment” even before the pandemic, according to Langley. Amid lockdown orders when the COVID-19 pandemic hit the United States and depressed shopping in stores following the reopening, Belk’s sales fell 32% year-on-year. other in the months between March and December of last year. Liquidity in April 2020 was down 70%.

“This pandemic has undoubtedly been the primary catalyst for Belk’s declining liquidity position and its current inability to meet future debt service obligations,” Langley said in court documents.

Faced with debts it couldn’t bear and continued liquidity constraints, Belk has been negotiating a solution with its lenders for months, culminating in a bankruptcy-requiring restructuring plan that the company first announced in late January. .

Langley said the plan, which leaves Sycamore as the majority owner of Belk, has the backing of lenders representing nearly all of its term loan receivables and would pay off unsecured debts. The CFO touted the plan as a way to keep his stores open and 17,000 jobs in place.

The US trustee in the case objected to the brisk pace. “The process here departs sharply from the Bankruptcy Code’s qualified and carefully crafted authorization of prepackaged bankruptcy plans,” said trustee Kevin Epstein in court documents, who argued that speed does not failed to provide sufficient notice to creditors. Epstein also objected to the third party legal disclaimers included in the plan.

“First of all, the nearly full-page, one-paragraph, single-spaced version begins with a 630 word sentence with 92 commas and five parentheses. It is, quite simply, unintelligible,” the administrator said, adding that to “assert that tens of thousands of creditors have consented to a release that someone with a law degree would have a hard time understanding and that an untrained creditor could not understand, eviscerates any meaning of the word consent . “

A Houston Federal District Court judge ruled that the notice and discharges were sufficient and in accordance with the bankruptcy code.

Comments are closed.